Citadel Securities Faces New Pressure Over GameStop Frenzy

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Electronic trading firm debunks ‘internet conspiracies’ attacking operations of meme stock

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The unusual statement came when the hashtag #KenGriffinLied was trending on Twitter.

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Internal Robinhood communications were made public last week as part of a lawsuit filed by investors affected by trade sanctions. The suit is seeking damages from Robinhood and several other brokerages, as well as Citadel Securities and certain firms that clear stock trades.

The communication shows executives at Robinhood and Citadel Securities discussed the move in the days before the January 28 move, when both firms were grappling with increased trading volumes in mem shares. Although the communication does not make it clear what the firms discussed, they indicate that the talks were acrimonious. In an internal chat message on January 27, Jim Swartvout, president of Robinhood’s stockbrokerage arm, said, “You wouldn’t believe we had that with Citadel. All messed up.”

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Lawyers for the plaintiffs said in a court filing last week that communications showed Citadel Securities pressured Robinhood to curb the trading of small investors.

Citadel Securities — which executes many orders submitted by Robinhood clients — has denied such pressure. In February, Mr. Griffin, the firm’s founder and main shareholder, said in written testimony to the House Financial Services Committee that his firm had “no role in Robinhood’s decision to limit trading in GameStop or any other ‘meme’ shares.”

The trading firm reiterated its stand on Tuesday. “Conspiracy theorists and plaintiffs’ attorneys are attempting to fabricate an absurd story from routine communications between Citadel Securities and brokers handling orders for retail investors,” Citadel Securities said in the statement.

The firm said its discussions with brokerages during the GameStop frenzy were aimed at ensuring market stability. “Amid the unprecedented surge in retail business engagement, our relevant teams ensured that operational demands were addressed and that retail investors had access to Citadel Securities’ superior execution capabilities,” Citadel Securities said.

A Robinhood spokesperson denied Tuesday that Citadel Securities had pressured the brokerage to impose trading restrictions.

“These complaints attempt to create a false narrative of collusion, and we will vigorously work to correct the record with facts,” she said. “In times of market stress, it is normal and appropriate for us to communicate even more with our market centers.”

Plaintiffs’ attorney Joseph Savery said the communications uncovered from the lawsuit spoke for themselves.

“What may appear to be ‘regular’ conduct to conspirators may amount to illegal, hostile conduct,” he said. “The actions of the defendants seriously injured retail investors, and we are determined to effectively pursue this case on their behalf and prepare the case for trial.”

Robinhood has said it imposed January 28 trading restrictions that morning because of a $3 billion margin call from Depository Trust and Clearing Corp, which runs the clearinghouse of US stock trades. By imposing limits, Robinhood reduced the amount of money required to post at the clearinghouse. The DTCC has confirmed Robinhood’s account.

GameStop’s share price fell 44% on January 28 after several brokerages imposed limits that prevented many investors from buying shares or adding to their holdings. The videogame retailer’s stock price was previously buoyed by a widespread campaign on Reddit and other social-media sites, with investors touting GameStop and some other stocks.

The episode has prompted several congressional hearings and is expected to be the subject of a soon-to-be-released report from the Securities and Exchange Commission.

Electronic trading firms such as Citadel Securities pay retail brokerages for the right to execute their clients’ stock and options orders, a practice called pay for order flow. SEC Chairman Gary Gensler has said that the agency is investigating payment for order flows as part of a comprehensive review of the US stock-market structure prompted by the meme-stock incident.

Alexander Osipovich at [email protected]

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